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Optimal favoritism in all-pay auctions and lottery contests

Jörg Franke (), Wolfgang Leininger and Cédric Wasser ()

European Economic Review, 2018, vol. 104, issue C, 22-37

Abstract: We analyze the revenue-enhancing potential of favoring specific contestants in complete-information all-pay auctions and lottery contests with several heterogeneous contestants. Two instruments of favoritism are considered: head starts that are added to the bids of specific contestants and multiplicative biases that give idiosyncratic weights to the bids. In the all-pay auction, head starts are more effective than biases while optimally combining both instruments even yields first-best revenue. In the lottery contest, head starts are less effective than biases and combining both instruments cannot further increase revenue. As all-pay auctions revenue-dominate lottery contests under optimal biases, we thus obtain an unambiguous revenue-ranking of all six combinations of contest formats and instruments.

Keywords: All-pay auction; Lottery contest; Favoritism; Head start; Revenue dominance (search for similar items in EconPapers)
JEL-codes: C72 D44 D72 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Optimal Favoritism in All-Pay Auctions and Lottery Contests (2016) Downloads
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